Sunday, October 18, 2009

Earnings from a Term Plan

I was tempted to write about something else but since I started this topic about earnings, I might as well continue on it. Lets talk about term plans today.

I will not be using term plan to directly compare with WL plan because the Sum Assured that I normally recommend to my clients are not the type of small sum assured from Whole Life plan.

I'll take a few examples of the good Term plans around namely NTUC Income Family Insurance Plan, HSBC Mortgage Reducing Term and the AXA decreasing term plan. These 3 plans are very competitive in premium for their own class.

NTUC Income Family Insurance Plan
Example - Male age 30, $200,000 Living Rider, $300,000 Term Rider, $200/day Hospital Benefit Rider (30 years coverage)
Premium - $1,549.30/yr

First Year Comm
$1,549.30 x 10%(Commission Rate) + 45%(Overriding) = $224.64 (Paid to Company)
$224.64 x 59% = $132.54 paid to me for the 1st year.
$132.54/12 = $11.05/month for the 1st year
Renewal Year Comm
$1,549.30 x 10%(Commission Rate) + 30%(Overriding) = $201.41 (Paid to Company)
$201.41 x 59% = $118.83 paid to me from 2nd year onwards
$118.83/12 = $9.90/month average for the renewing year

HSBC Mortgage Protector (Joint Cover)
Example - Male + Female age 35, $500,000 x 25 years at 4% interest
Premium - $946.40/yr

First Year Comm
$946.40 x 12%(Commission Rate) + 50%(Overriding) = $170.35 (Paid to Company)
$170.35 x 59% = $100.50 for the 1st year paid to me
$100.50/12 = $8.37/month for the 1st year
Renewal Year Comm
$946.40 x various rate for next 4 years = $189.28 Paid to Company over 4 years
$189.28 x 59% = $111.67 from 2nd year to 5th year
$111.67/12/4 = $2.33/month average over 2nd to 5th year

AXA Decreasing Term
Example - Female age 35, $1,000,000 x 30 years at 0% interest rate
Premium - $910.00/yr

First Year Comm
$910 x 16.80%(Commission Rate) + 0%(Overriding) = $152.88 (Paid to Company)
$152.88 x 59% = $90.20 for the 1st year paid to me
$90.20/12 = $7.52/month for the 1st year
Renewal Year Comm
$910 x various rate for next 5 years = $633.36 Paid to Company over 5 years
$633.36 x 59% = $373.68 from 2nd year to 6th year
$373.68/12/5 = $6.23/month average over 2nd to 5th year

As you can see above, we can hardly earns $10/mth for each of above term cases. When we do proper comparisons for our clients, these are the type of policies we will eventually recommend and it is hard to convince ourselves for other plans that pay us better. It is normal that the lowest premium for clients frequently translate to lowest comm for us.

Simple Mathematics: Calculate how many of such cases we have to do before we can earn a simple wage of $2,000/month.


Anonymous said...


I suggest that you rethink your business plan. People who really appreciate the work that you do for them are rare. Learn to prioritize.

Anonymous said...

I have the impression that the purpose of your various posts on typical Commissions earned, is really to tell the rest of us, that it's hard life for an agent to earn the insurance commissions and they are not much.

whilst it is true that the commissions as calculated, don't seem very high, the valuable thing about them is that they are "passive income" and continues for a long time after intitiation.. You work hard only once for it, after which, the money rolls in auto for you. I believe that perhaps 80% of clients will not terminate policies over the whole of 10 year terms or more. Hence generally speaking, it is fair deal, working a little hard at first and then you get this passive income from the commissions for a decent, long period.

I'm not saying this is wrong, but i am just not understanding the point of the posts.

Khiat Han Hwee Adrian said...

I initially started with just Shield Plan but I thought might as well be transparent and let others know what are advisers generally earning for other plans if they do the comparison work for their clients and recommend the right things to them.

I'm not trying to be self-pitied here. I'm fortunate to have the numbers to make up for the low commissions I got for each case.

You are half right to say that it is passive income because most plans pay for about 5-6 years except the Shield and one particular Term plan.

I'll write about earnings from investments next and my last post will be on how it is possible to make a living despite the low commissions.

Anonymous said...

Adrain, bear with it now. Push MAS to implement the fairer plan that is based on value, work and advice and the scope of advisory service.
As mentioned before, push that all commission be removed from all products and fee charging as the standard of remuneration.
MAS knows that commission has been the cause of the problems and the evil behind many product pushing agents.
Jia Yu

Anonymous said...

Hi Adrian,

I'm the 1st poster. Apart from investments and term/shield plans, which are affected by market sentiments, you should try looking at other classes of business which are not affected by market downturn.

I've heard of agents hammering big time on PA, maid and Shield plans. Each case pays laugable commission. However when the number of clients is really big, you can shake leg before 40 yrs old le.

Don't just look at things from one angle.

Anonymous said...

You should consider auto insurance as well. So many cars on the road, it is a potential big business out there.